A LOT of stock at 8 1/2, looks like FAHN is onto this pig. BTW, speaking of brokers, looks like these guys are not involved as ZSUN MM's any more: "Tacky Tactics for Selling Penny Stocks: Susan Antilla
New York, May 25 (Bloomberg) -- Investor Milton Hillman was
told by his broker that a stock in his account had been sold for
a profit of $60,000. Later he learned he'd actually lost $70,000.
Investor Christa Hanson fell for a pitch and bought 1,000
shares of a uniform-manufacturing company. Then she discovered it
would be impossible for her to sell them, because the shares were
restricted.
Michael S. Newton had high hopes of a fast profit when he
spent $62,220 on a stock -- his broker said the company was about
to merge with a Fortune 500 corporation. The merger never
happened; he lost all his money.
Different investment pitfalls all, yet the three investors
had one thing in common: All were customers of Pacific Cortez
Securities, the San Diego, California, firm that used to be known
as La Jolla Securities.
Pacific Cortez, the subject of last week's column, has since
shut down, but not before scattering some seeds at a Dallas firm
called Salomon Grey Financial Corp., formerly RRK Securities Inc.
Before management shut its doors on April 30, though, Pacific
Cortez had left a long trail of victims.
John P. Cione, a former Securities and Exchange Commission
lawyer, was appointed by a California court March 8 to settle in
at a desk at Pacific Cortez and monitor the tricks of its dubious
trade.
Dangerous Patterns
In a report to the California Superior Court for the County
of San Diego April 5, Cione described an operation where brokers
routinely marked trades ''unsolicited'' despite the fact they'd
pitched them; where employees checked off the box on new account
forms that says ''speculation'' without the customer knowing;
where payments to brokers went as high as 50 percent of the size
of a purchase (but with penalties if the broker subsequently let
the customer sell); and where there was a ''pattern'' of
unauthorized transactions and refusals to sell ''house'' stocks,
those in which the firm made a market, when clients asked to
sell.
''Not only would the firm prevent us from selling house
stock by not executing orders, but they also penalized us for
doing so,'' said Douglas Pollicino, a former Pacific Cortez
broker, in a written statement to the Superior Court of the State
of California in San Diego County. ''For most house stocks, there
would be a period of time where we would lose our commission from
the ''buy'' order if our client wanted to sell his or her
shares.''
Pollicino also wrote that the firm encouraged brokers to woo
investors initially to buy a big-name stock listed on a major
exchange before moving them into the firm's house stocks. While
boiler room operations frequently use the ''well-known-stock-
first'' tactic in order to first make investors feel comfortable,
Pollicino explained that Pacific Cortez did it for another
reason: investors with no liquid securities in their account
might back out of a penny stock tout that went bad, but would be
stuck with the trade if the broker had a big, liquid stock it
could sell in order to cover a dicey penny-stock purchase.
Not Much There
One house stock that Pollicino and others pushed hard for
commissions as big as 40 percent of the trade was Sterling
Worldwide Corporation, a company whose most recent quarterly
report with the Securities and Exchange Commission described ''no
substantial revenues from operations for the quarter ended
September 30, 1998,'' and expectations of only ''limited
revenues'' for the balance of that fiscal year.
In an arbitration complaint that he and his wife filed
against Pollicino and LaJolla last year, investor Hillman said
Pollicino promised that Sterling would double in two weeks.
Instead, Hillman lost on Sterling. Investor Newton said in his
complaint filed with the National Association of Securities
Dealers that Pollicino made claims of having had one-on-one
conversations with the management of Sterling. Pollicino and one
of his colleagues said that big mutual funds were loading up on
the stock, according to the complaint, which described promises
of ''$5.00 to $7.00 a share profit and send your money back in
five or six weeks, easily before sixty days.''
Poor Disclosure
While Pollicino and co-workers had lots of misinformation to
convey, they managed to sidestep more truthful disclosure that
surely would have caused their customers to pause. (California
and investor Newton have dropped Pollicino from their complaints;
Pollicino says that has nothing to do with his providing
information about the misdeeds of Pacific Cortez).
Sterling, for one thing, had a president whose husband,
Leslie Greyling, was a consultant to the company despite an
eyebrow-raising regulatory record. According to regulatory
filings by Sterling, Greyling entered into a consent decree with
the SEC over charges of securities fraud in 1991; pleaded guilty
to a charge of false statements on a visa application in 1996;
and pleaded guilty in connection with a plea agreement to
securities fraud in a Florida U.S. District Court in 1997. In
connection with the last, Greyling was deported from the U.S. and
told he could not re-enter the country ''without the permission
of the Attorney General.''
Boxing Match
Also on the consultants' roster at Sterling was Richard
Gladstone, a former brokerage firm principal who was barred from
the brokerage business by the NASD in 1990. After an appeal, the
NASD Board of Governors affirmed the bar and even assessed
Gladstone and his firm for legal costs. Among the bizarre
disclosure in Sterling's SEC filings is that Gladstone owes
Sterling $51,995 for a loan the company extended to him to help
underwrite the promotion of the 1997 boxing match between Sugar
Ray Leonard and Hector Comacho. Talk about diversification.
A telephone operator said there were two listings in Boca
Raton, Florida, for Richard Gladstone but that they were not
published in the directory. There is no phone listing for
Gladstone's former firm, Morgan Gladstone & Co.
Another player in Sterling's past who wound up on the wrong
side of the regulators was Alan Michael Berkun, also a
''consultant'' for Sterling. In November, Berkun was fined and
censured by NASDR, the regulatory unit of the National
Association of Securities Dealers, for defrauding investors. He
neither admitted nor denied the charges in the settlement. Phone
messages left at two New York City listings for Lexington
Capital, the name of Berkun's firm, weren't answered.
Lawsuit
Dan Boyar, a lawyer for Sterling, said neither Greyling nor
Gladstone is a consultant to the company anymore. Sterling sued
Berkun for collection of $708,000 in respect to stock options he
exercised, so presumably he won't be welcome back by the company.
Boyar said that ''no one with any level of authority'' at
Sterling has had anything to do, directly or indirectly, with La
Jolla or its successor company. Gladstone was used as a
consultant by previous management, Boyar said.
Indeed, the best advice of all for investors may come from
Boyar, Sterling's legal counsel, who must have a place in this
story considering he pleaded guilty to a misdemeanor charge back
in 1997, when he was a co-defendant in the securities fraud case
against Greyling. Boyar points out that Sterling followed
securities law and disclosed all the ugly stuff about its
consultants, allowing investors every opportunity to opt out of
buying Sterling shares
''Anyone with a computer anywhere in the world can pull up''
SEC filings, he added. ''If investors get a phone call from a
broker and don't do independent checking, they do so at their own
peril.'' |
